By Jody Shenn

July 1 (Bloomberg) — Banks are buying the mortgage-backed bonds that hobbled the global financial system, helping to sustain higher prices for the debt, according to Federal Reserve data, investors and traders.

Large U.S. commercial banks held $154.6 billion in mortgage securities that lack government backing on June 17, an increase of 5.6 percent since April, Fed data show. Typical prices for the most-senior such securities backed by prime-jumbo mortgages have risen to 75 cents on the dollar from 63 cents in March, according to Barclays Capital.
continue reading "Banks Sustain Higher Prices for Mortgage Debt That Hobbled Them"

In the past five years I have found some fantastic investments, and noted them. American Home Mortgage (NYSE: AHM) is not one of them and it’s time to face the facts and take the hit. IT WAS A BAD CALL ON MY PART, even it was not a direct recommendation. There is no getting around it, AHM is in trouble and to say it was my worst call since the bubble burst is not much relief.

I wrote a story in May titled Someone asked about Amercian Home Mortgage, and although I only said this one is worth watching, I was still calling attention to a stock that did not pan out and for that I deserve at least some boos from the crowd. The following was taken from the story:
The most recent Standard & Poors report from May 2, 2007 rates AHM four stars with a buy rating. Quoting from the report, “While we see AHM’s exposure to the ALT-A market affecting near-term earnings, we believe it remains well capitalized and positioned for long term growth.” They go on further to state that “…the price is warranted by what we see as it’s strong balance sheet.” I must point out that this was written about the same time as AHM Shares Fall on Stock Sale when AHM sold common shares to increase it’s liquidity and numerous analysts expressed concern about it’s financial strength. I am not sure this is accounted for in the S&P report.

While I did raise some questions and each investor should do the same AHM seems to have had even more aspects to question back then, and the same is true today. James B. Stewart of the Wall Street Journal and Smart Money recently wrote a similar story line (including discussion about not catching a falling knife and diversifying) and he actually did a little worse, he had bought in. Given the inevitable litigation I not only wonder now if it can survive, but if it will be driven into bankruptcy not by its sad loan portfolio but by the legal costs to defend itself. AHM closed at $1.48, up for the day, but no consolation given its long slide (from $20 when I posted) and current status.

Those of you who are new to BloggingStoctks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well - INCLUDING ANY BAD CALLS.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
http://www.bloggingstocks.com/2007/08/02/american-home-mortgage-facing-the-sad-facts/